Item 7. Management’s Discussion and Analysis
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should
be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this annual report.
This discussion contains forward-looking statements that are based on our management’s current expectations, estimates and projections
for our business, which are subject to a number of risks and uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking
Statements and “Part I. Item 1A. Risk Factors.”
Overview
We are an innovative medical device company that is designing,
developing, and commercializing robotic exoskeletons that allow individuals with mobility impairments or other medical conditions the
ability to stand and walk once again. We have developed and are continuing to commercialize our ReWalk Personal and ReWalk Rehabilitation
devices for individuals with spinal cord injury (“SCI Products”), which are exoskeletons designed for individuals with paraplegia
that use our patented tilt-sensor technology and an on-board computer and motion sensors to drive motorized legs that power movement.
We have also developed and began commercializing our ReStore device
in June 2019. ReStore is a powered, lightweight soft exo-suit intended for use in the rehabilitation of individuals with lower limb disability
due to stroke. During the second quarter of 2020 we have finalized and moved to implement two separate agreements to distribute additional
product lines in the U.S. market. The Company will be the exclusive distributor of the MediTouch Tutor movement biofeedback systems in
the United States and will also have distribution rights for the MYOLYN MyoCycle FES cycles to U.S. rehabilitation clinics and personal
sales through the U.S. Department of Veterans Affairs (“VA”) hospitals and other personal sales. These new products will improve
our product offering to clinics as well as patients within the VA as they both have similar clinician and patient profile.
Our principal markets are the United States and Europe. In Europe,
we have a direct sales operation in Germany and the United Kingdom and work with distribution partners in certain other major countries.
We have offices in Marlborough, Massachusetts, Berlin, Germany and Yokneam, Israel, where we operate our business from.
We have in the past generated and expect to generate in the future
revenues from a combination of third-party payors, self-payors, including private and government employers, and institutions. While a
broad uniform policy of coverage and reimbursement by third-party commercial payors currently does not exist in the United States for
electronic exoskeleton technologies such as the ReWalk Personal, we are pursuing various paths of reimbursement and support fundraising
efforts by institutions and clinics. In December 2015, the U.S. Department of Veterans Affairs, or the VA, issued a national policy for
the evaluation, training and procurement of ReWalk Personal exoskeleton systems for all qualifying veterans across the United States.
The VA policy is the first national coverage policy in the United States for qualifying individuals who have suffered spinal cord injury.
As of December 31, 2021, we had placed 25 units as part of the VA policy.
According to a 2017 report published by the Centers for Medicare
and Medicaid Services, or CMS, approximately 55% of the spinal cord injury population which are at least five years post their injury
date are covered by CMS. In July 2020, a code was issued for ReWalk Personal 6.0 (effective October 1, 2020), which might later be followed
by coverage policy of CMS.
Additionally, to date, several private insurers in the United States
and Europe have provided reimbursement for ReWalk in certain cases. In Germany, we continue to make progress toward achieving ReWalk coverage
from the various government, private and worker’s compensation payors. In September 2017, each of German insurer BARMER GEK (“Barmer”)
and national social accident insurance provider Deutsche Gesetzliche Unfallversicherung (“DGUV”), indicated that they will
provide coverage to users who meet certain inclusion and exclusion criteria. In February 2018, the head office of German statutory health
insurance, or SHI, Spitzenverband (“GKV”) confirmed their decision to list the ReWalk Personal 6.0 exoskeleton system in the
German Medical Device Directory. This decision means that ReWalk will be listed among all medical devices for compensation, which SHI
providers can procure for any approved beneficiary on a case-by-case basis. During the year 2020 we announced several new agreements with
German SHIs such as TK and DAK Gesundheit and others as well as the first German Private Health Insurer (“PHI”) that have
chosen to enter into an agreement that outlines the process of obtaining a device for eligible insured patient. We are currently working
with several additional SHIs and PHIs on securing a formal operating contract that will establish the process of obtaining a ReWalk Personal
6.0 device for their beneficiaries within their system.
During the second quarter of 2020 we finalized and moved to implement
two separate agreements to distribute additional product lines in the U.S. market. The Company will be the exclusive distributor of the
MediTouch Tutor movement biofeedback systems in the United States and will also have distribution rights for the MYOLYN MyoCycle FES cycles
to U.S. rehabilitation clinics and personal sales through the VA hospitals. These new products will improve our product offering to clinics
as well as patients within the VA as they both have similar clinician and patient profile. We have incurred net losses and negative cash
flow from operations since inception and anticipate this to continue in the near term. We will continue to evaluate spending while continuing
to focus resources on activities to commercialize the Restore device for stroke patients, achieving additional commercial reimbursement
coverage decisions for our ReWalk Personal device, continued research and development activities related mainly to our product line maintenance
as well as our soft exo-suit design and activities related to our FDA 522 postmarket study.
For information on the effects to our Company from the ongoing
COVID-19 pandemic, see “Part I, Item 1. Business—Evolving COVID-19 Pandemic.”
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Components of Our Statements of Operations
Revenues
We currently rely, and in the future will rely, on sales and rentals
of our ReWalk Personal 6.0 device, our ReStore device, additional devices such as MyoCycle and MediTouch which we are distributing (“Distributed
Products”) and related service contracts and extended warranties for our revenue. Our revenue is generated from a combination of
third-party payors, institutions, and self-payors, including private and government employers. Payments for our products by third party
payors have been made primarily through case-by-case determinations. Third-party payors include, without limitation, private insurance
plans and managed care programs, government programs including the VA, and worker’s compensation payments. We expect that third-party
payors will be an increasingly important source of revenue in the future as well as clinics that will be interested in the ReStore device.
In December 2015, the VA issued a national policy for the evaluation, training and procurement of ReWalk Personal exoskeleton systems
for all qualifying veterans across the United States. The VA policy is the first national coverage policy in the United States for qualifying
individuals who have suffered spinal cord injury.
All of our ReWalk Personal and ReWalk Rehabilitation systems are
covered by a five-year warranty from the date of purchase, which is included in the purchase price. We offer customers the ability to
purchase, any time during the initial warranty period, an extended warranty for up to three additional years. Both warranties cover all
elements of the systems, including the batteries, other than normal wear and tear. Our ReStore device is sold with a two-year warranty.
Warranties for our Distributed Products warranty ranges between one year to ten years depending on the specific product and part.
Cost of Revenues and Gross
Profit
Cost of revenue consists primarily of systems purchased from our outsourced manufacturer,
Sanmina, salaries, personnel costs including non-cash share-based compensation, associated with manufacturing and inventory management,
training and inspection, warranty and service costs, shipping and handling and inventory write off expenses. Cost of revenues also includes
royalties and expenses related to royalty-bearing research and development grants.
Our gross profit and gross margin as a percentage of sales is influenced
by a number of factors, including primarily the volume and price of our products sold and fluctuations in our cost of revenues. We expect
gross profit and gross margin as a percentage of sales will improve in the future as we increase our sales volumes and decrease the product
manufacturing costs.
Operating Expenses
Research and Development Expenses, Net
Research and development expenses, net consist primarily of salaries,
related personnel costs including share-based compensation, supplies, materials and consulting expenses related to product design and
development, clinical studies, regulatory submissions, patent costs, sponsored research costs and other expenses related to our product
development and research programs. We expense all research and development expenses as they are incurred.
Research and development expenses are presented net of the amount
of any grants we receive for research and development in the period in which we receive the grant. We previously received grants and other
funding from the Israel Innovation Authority, (formerly known as the Office of the Chief Scientist) (“IIA”). Certain of those
grants require us to pay royalties on sales of certain systems, which are recorded as cost of revenues. We may receive additional funding
from these entities or others in the future. See “Grants and Other Funding” below.
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Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of salaries,
related personnel costs including share-based compensation for sales, sales support, marketing and reimbursement personnel, travel, marketing,
advertisement, tradeshows and conferences activities, public relations activities, and consulting costs. Also included in the sales and
marketing expenses are the costs associated with our reimbursement activities in the United States and Germany.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries,
related personnel costs including share-based compensation for our administrative, finance, and general management personnel, professional
services, and insurance.
Financial Expenses (Income), Net
Financial income and expenses consist of bank commissions, foreign
exchange gains and losses, interest earned on investments in short term deposits, interest expenses related to the Loan Agreement (as
defined below) with Kreos (as defined below).
Interest income consists of interest earned on our cash and cash
equivalent balances. Interest expense consists of interest accrued on, and certain other costs with respect to any indebtedness. Foreign
currency exchange changes reflect gains or losses related to transactions denominated in currencies other than the U.S. dollar.
On December 30, 2015, we entered into a Loan Agreement (the “Loan Agreement”)
with Kreos Capital V (Expert Fund) Limited (“Kreos”) pursuant to which Kreos extended a line of credit to us in the amount
of $20.0 million. In connection with the Loan Agreement, we issued to Kreos a warrant to purchase up to 4,771 of our ordinary shares at
an exercise price of $241.00 as we drew down $12.0 million under the Loan Agreement, which amount was increased to 6,679 ordinary shares
upon an additional drawdown of $8.0 million. On June 9, 2017, $3.0 million of the outstanding principal amount was extended by an additional
three years with the same interest rate and became subject to repayment in accordance with, and subject to the terms of a secured convertible
promissory note (the “Kreos Convertible Note”). On November 20, 2018, we agreed to repay $3.6 million to Kreos in satisfaction
of all outstanding indebtedness under the Kreos Convertible Note and other related payments, including prepayment costs and end of loan
payments and Kreos agreed to terminate the Kreos Convertible Note. We repaid Kreos the $3.6 million by issuing to Kreos 192,000 units
(each unit consisting of one ordinary share and one warrant to purchase one ordinary share) and 288,000 pre-funded units (each pre-funded
unit consisting of one pre-funded warrant to purchase one ordinary share and one warrant to purchase one ordinary share) at the a public
offering price of $0.30 and $0.29, respectively, for an aggregate price of $3.6 million (including the aggregate exercise price for the
ordinary shares to be received upon exercise of the pre-funded warrants, assuming Kreos exercises all of the pre-funded warrants it purchased
as part of our public offering. We and Kreos also agreed to revise the principal and the repayment schedule under the Kreos Loan Agreement.
Additionally, we entered into the Kreos Warrant Amendment with Kreos, which amended the exercise price of the warrant to purchase 6,679
ordinary shares currently held by Kreos from $241.00 to $7.50. On December 29, 2020, we repaid in full the remaining loan principal amount
to Kreos including the end of loan payments, and by that discharged all of our obligations to Kreos.
For further discussion of the Loan Agreement with Kreos, see “-Liquidity
and Capital Resources” below and also Note 6 to our audited consolidated financial statements below.
Taxes on Income
As of December 31, 2021, we had not yet generated taxable
income in Israel. As of that date, our net operating loss carry forwards for Israeli tax purposes amounted to approximately $205.8 million
and our net operating loss carry forwards for U.S. tax purposes amounted to approximately $74 thousand. After we utilize our net operating
loss carry forwards, we are eligible for certain tax benefits in Israel under the Law for the Encouragement of Capital Investments, 1959.
Our benefit period currently ends ten years after the year in which we first have taxable income in Israel provided that the benefit period
will not extend beyond 2024.
69
Our taxable income generated outside of Israel will be subject
to the regular corporate tax rate in the applicable jurisdictions. As a result, our effective tax rate will be a function of the relative
proportion of our taxable income that is generated in those locations compared to our overall net income.
Grants and Other Funding
Israel Innovation Authority (formerly known as
the Office of the Chief Scientist)
From our inception through December 31, 2021, we have received
a total of $1.97 million in funding from the IIA, $1.57 million of which are royalty-bearing grants, while $400 thousand were received
in consideration for an investment in our preferred shares. Out of the royalty-bearing grants received, we have paid royalties to the
IIA in the total amount of $99 thousand. The agreements with IIA require us to pay royalties at a rate of 3% on sales of certain systems
and related services up to the total amount of funding received for the development of these systems, linked to the dollar, and bearing
interest at an annual rate of LIBOR applicable to dollar deposits. If we transfer IIA-supported technology or know-how outside of Israel,
we will be liable for additional payments to IIA depending upon the value of the transferred technology or know-how, the amount of IIA
support, the time of completion of the IIA-supported research project and other factors. As of December 31, 2021, the aggregate contingent
liability to the IIA was $1.5 million. For more information, see “Part I, Item 1A. Risk Factors-We have received Israeli government
grants for certain of our research and development activities and we may receive additional grants in the future. The terms of those grants
restrict our ability to manufacture products or transfer technologies outside of Israel and we may be required to pay penalties in such
cases or upon the sale of our company.”
Results of Operations
Year Ended December 31, 2021 Compared
to Year Ended December 31, 2020
Revenues
Our revenues for 2021 and 2020 were as follows (dollars in thousands,
except unit amounts)
Years Ended December 31,
2021
2020
Personal unit revenues
$
4,820
$
4,220
Rehabilitation unit revenues
$
1,146
$
173
Revenues
$
5,966
$
4,393
Personal unit revenues consist of ReWalk Personal 6.0 and Distributed
Products sale, rental, service and warranty revenue for individual use.
Rehabilitation unit revenues consist of ReStore, Distributed Products
and SCI Products sale, rental, service and warranty revenue to clinics and hospitals for treating patients with relevant medical conditions
or for usage by medical academic centers.
Revenues increased by $1.6 million, or 36%, during 2021 compared
to 2020. The increase was driven primarily by higher number of rehabilitation units sold in the Unites States including a multiple unit
order to a medical academic center as well as an increase in personal unit revenues in Germany as we have seen reduced COVID-19 restrictions.
In the future we expect our growth to be driven by sales of our
ReWalk Personal device to third-party payors as we continue to focus our resources on broader commercial coverage policies with third-party
payors as well as sales of the ReStore and other products to rehabilitation clinics and personal users.
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Gross Profit
Our gross profit for 2021 and 2020 were as follows (in thousands):
Years Ended December 31,
2021
2020
Gross profit
$
2,903
$
2,189
Gross profit was 49% of revenue for 2021, compared to a gross profit of 50% of revenue for 2020. Our gross profit declined because of
a higher inventory write-off of ReStore parts due to lower than expected sales during the pandemic and increased service expenses, partially
offset by a higher number of Personal 6.0 units sold and an increase in our average selling price due to a change in sales mix.
We expect our gross profit to improve, assuming we increase our
sales volumes, which could also decrease the product manufacturing costs. Improvements may be partially offset by the lower margins we
currently expect from ReStore and our Distributed Products as well as due to an increase in the cost of product parts, especially as long
as COVID-19 pandemic is affecting the market.
Research and Development
Expenses, Net
Our research and development expenses, net for 2021 and 2020 were
as follows (in thousands):
Years Ended December 31,
2021
2020
Research and development expenses, net
$
2,939
$
3,459
Research and development expenses, decreased by $520 thousand, or 15%, during 2021 compared
to 2020. The decrease is attributable to decreased personnel and personnel related expenses partially offset with higher subcontractors’
expenses.
We intend to focus our research and development expenses mainly
on our current products maintenance and improvement as well as developing our “soft suit” exoskeleton for additional indications
affecting the ability to walk or a home use design such as the ReBoot
design.
Sales and Marketing Expenses
Our sales and marketing expenses for 2021 and 2020 were as follows
(in thousands):
Years Ended December 31,
2021
2020
Sales and marketing expenses
$
6,993
$
5,754
Sales and marketing expenses increased by $1.24 million, or 22%, during 2021 compared to 2020. The increase
was driven by higher employee and employee related expenses including sales related compensation, travel and tradeshows activity as well
as our Payment Protection Program (“PPP”) grant forgiveness which reduced the expenses last year and higher professional
expense during 2021.
In the near term our sales and marketing expenses are expected to be driven by our efforts
expand our reimbursement coverage of our ReWalk Personal device and to expand our current product commercialization.
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General and Administrative
Expenses
Our general and administrative expenses for 2021 and 2020 were
as follows (in thousands):
Years Ended December 31,
2021
2020
General and administrative
$
5,626
$
4,980
General and administrative expenses increased by $646 thousand,
or 13%, during 2021 compared to 2020. The increase was driven by increased personnel and personnel related expenses, higher share-based
compensation expenses as well as professional services expenses.
Financial Expenses (income),
Net
Our financial expenses, net for 2021 and 2020 were as follows (in
thousands):
Years Ended December 31,
2021
2020
Financial expenses (income), net
$
(13
)
$
921
Financial expenses (income), net, decreased by $934 thousand, or
101% during 2021 compared to 2020. The decrease is mainly due to lower interest expenses related to the Loan Agreement with Kreos, which
was fully repaid in December 2020. For further discussion of the Loan Agreement with Kreos, see “-Liquidity and Capital Resources”
section below and Note 6 to our audited consolidated financial statements.
Income Tax
Our income tax for 2021 and 2020 was as follows (in thousands):
Years Ended December 31,
2021
2020
Taxes on income
$
94
$
51
Income taxes increased by $43 thousand or 84% during 2021 compared to 2020 mainly due
to our subsidiary’s activity in Germany.
Year Ended December 31, 2020 Compared to Year Ended December 31,
2019
A discussion of changes in our results of operations in 2020 compared
to 2019 has been omitted from this annual report on Form 10-K but may be found in “Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC
on February 18, 2021, which is available free of charge on the SECs website at www.sec.gov and at www.rewalk.com, and is incorporated
by reference herein.
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Critical Accounting Policies
Our consolidated financial statements are prepared in accordance
with United States generally accepted accounting principles. The preparation of our financial statements requires us to make estimates,
judgments and assumptions that can affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates,
judgments and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. Materially
different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that
are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. See Note 2
to our audited consolidated financial statements presented elsewhere in this annual report for a description of the significant accounting
policies that we used to prepare our consolidated financial statements. The critical accounting policies that were impacted by the estimates,
judgments and assumptions used in the preparation of our consolidated financial statements are discussed below.
Revenue Recognition
On January 1, 2018, we adopted Topic 606 using the modified retrospective
method for contracts that were not completed as of January 1, 2018. Under the modified retrospective method, we recognized the cumulative
effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. This adjustment did
not have a material impact on our consolidated financial statements. Results for reporting periods beginning after January 1, 2018 are
presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting
under Revenue Recognition (“Topic 605”).
The adoption of Topic 606 represents a change in accounting principle that will provide
financial statement readers with enhanced revenue recognition disclosures. In accordance with Topic 606, revenue is recognized when obligations
under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products or
services. Revenue is measured as the amount of consideration to which we expect to be entitled in exchange for transferring products or
providing services. To achieve this core principle, the Company applies the following five steps:
1. Identify the contract with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to performance obligations in
the contract
5. Recognize revenue when or as the Company satisfies a performance
obligation
Provisions are made at the time of revenue recognition for any
applicable warranty cost expected to be incurred. The timing for revenue recognition among the various products and customers is dependent
upon satisfaction of such criteria and generally varies from either shipment or delivery to the customer depending on the specific shipping
terms of a given transaction, as stipulated in the agreement with each customer. Other than pricing terms which may differ due to the
different volumes of purchases between distributors and end-users, there are no material differences in the terms and arrangements involving
direct and indirect customers. Our products sold through agreements with distributors are non-exchangeable, non-refundable, non-returnable
and without any rights of price protection or stock rotation. Accordingly, we consider all the distributors as end-users. We generally
do not grant a right of return for our products. There have been a few occasions in which we experienced a return of our products. Therefore,
we recorded reductions to revenue for expected future product returns based on our historical experience.
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For the majority of sales of Rehabilitation systems, we include
training and consider the elements in the arrangement to be a single unit of accounting. In accordance with ASC 606, we have concluded
that the training is essential to the functionality of our systems. Therefore, we recognize revenue for the system and training only after
delivery, in accordance with the agreement delivery terms, to the customer and after the training has been completed, once all other revenue
recognition criteria have been met. For sales of Personal systems to end users, and for sales of Personal or Rehabilitation systems to
third party distributors, we do not provide training to the end user as this training is completed by the rehabilitation centers or by
the distributor that have previously completed the ReWalk Training program.
Warranties are classified as either assurance type or service type
warranty. A warranty is considered an assurance type warranty if it provides the consumer with assurance that the product will function
as intended for a limited period of time.
In the beginning of 2018, we updated our service policy to include
a five-year warranty compared to a period of two years that were included in the past for parts and services. The first two years are
considered as assurance type warranty and the additional period is considered an extended service arrangement, which is a service type
warranty. An assurance type warranty is not accounted for as separate performance obligations under the revenue model. A service type
warranty is either sold with a unit or separately for units for which the warranty has expired. Revenue is then recognized ratably over
the life of the warranty.
The Company also offers a rent-to-purchase option for its ReWalk
Personal device. Those transactions provide potential customers the option to use the device for a short term, after which they can choose
whether to purchase it. In such cases we recognize revenue ratably according to the agreed rental monthly fee. For units placed, we transfer
control and recognize a sale when title has passed to our customer and rental revenue ratably according to the agreed rental monthly fee.
Each unit placed is considered an independent, unbundled performance obligation.
Share-Based Compensation
– Option and Restricted Stock Units (“RSUs”) Valuations
We account for share-based compensation in accordance with ASC
No. 718, “Compensation-Stock Compensation.” ASC No. 718 requires companies to estimate the fair value of equity-based
payment awards on the date of grant using an Option-Pricing Model, or OPM. The value of the portion of the award that is ultimately expected
to vest is recognized as an expense over the requisite service periods in our consolidated statements of operations.
We selected the Black-Scholes-Merton option pricing model as the
most appropriate method for determining the estimated fair value of options. The resulting cost of an equity incentive award is recognized
as an expense over the requisite service period of the award, which is usually the vesting period. We recognize compensation expense over
the vesting period using the straight-line method and classify these amounts in the consolidated financial statements based on the department
to which the related employee reports.
The determination of the grant date fair value of options using
the Black-Scholes-Merton option pricing model is affected by estimates and assumptions regarding a number of complex and subjective variables.
These variables include the expected volatility of our share price over the expected term of the options, share option exercise and cancellation
behaviors, risk-free interest rates and expected dividends, which are estimated as follows:
Risk-free Interest Rate.
The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life
of the options.
Dividend Yield. We have
never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we
used an expected dividend yield of zero.
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Expected Volatility. We
estimated the expected share price volatility for our ordinary shares by considering the historic price volatility for industry peers
based on price observations over a period equivalent to the expected term of the share option grants. Industry peers consist of public
companies in the medical device and healthcare industries. We intend to continue to consistently apply this process using the same or
similar industry peers until a sufficient amount of historical information regarding the volatility of our ordinary share price becomes
available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable
companies whose share prices are publicly available would be utilized in the calculation.
Expected Term . The expected
term of options granted represents the period of time that options granted are expected to be outstanding and is determined based on the
simplified method in accordance with ASC No. 718-10-S99-1 (SAB No. 110), as adequate historical experience is not available
to provide a reasonable estimate. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.
The fair value of RSUs granted is determined based on the price
of the Company’s ordinary shares on the date of grant.
Income Taxes
As part of the process of preparing our consolidated financial
statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We account for income taxes in accordance
with ASC Topic 740, “Income Taxes,” or ASC Topic 740. ASC Topic 740 prescribes the use of an asset and liability method whereby
deferred tax asset and liability account balances are determined based on the difference between book value and the tax bases of assets
and liabilities and carryforward tax losses. Deferred taxes are measured using the enacted tax rates and laws that are expected to be
in effect when the differences are expected to reverse. We exercise judgment and provide a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset
will not be realized. We have established a full valuation allowance with respect to our deferred tax assets.
ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”
provides presentation requirements to classify deferred tax assets and liabilities, along with any related valuation allowance, are classified
as non-current on the balance sheet. We account for uncertain tax positions in accordance with ASC 740 and recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position
should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly,
we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.
We recognize interest and penalties, if any, related to unrecognized tax benefits in tax expense.
Recently Issued and Adopted Accounting Pronouncements
A discussion of recent accounting pronouncements is included in Note 2w, New
Accounting Pronouncements to our consolidated financial statements in this annual report.
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Liquidity and Capital Resources
Sources of Liquidity and
Outlook
Since inception, we have
funded our operations primarily through the sale of our equity securities and convertible notes to investors in private placements, the
sale of our equity securities in public offerings, cash exercises of outstanding warrants and the incurrence of bank debt.
For the full year ended
December 31, 2021, the Company incurred a consolidated net loss of $12.7 million and has an accumulated deficit in the total amount of
$194.2 million. Our cash and cash equivalent on December 31, 2021, totaled $88.3 million. The Company’s negative operating cash
flow for the full year ended December 31, 2021, was $11.5 million. The Company has sufficient funds to support its operation for more
than 12 months following the approval of our consolidated financial statements for the fiscal year ended December 31, 2021.
We expect to incur future
net losses and our transition to profitability is dependent upon, among other things, the successful development and commercialization
of our products and product candidates, the achievement of a level of revenues adequate to support our cost structure. Until
we achieve profitability or generate positive cash flows, we will continue to need to raise additional cash. We intend to fund future
operations through cash on hand, additional private and/or public offerings of debt or equity securities, cash exercises of outstanding
warrants or a combination of the foregoing. In addition, we may seek additional capital through arrangements with strategic partners or
from other sources and we will continue to address our cost structure. Notwithstanding, there can be no assurance that we will be able
to raise additional funds or achieve or sustain profitability or positive cash flows from operations.
We previously considered the Investment Agreement (as defined below) with Timwell (as
defined below) as a potential source of ongoing liquidity. However, in March 2020, Timwell notified us that it would not invest the second
and third tranches under the Investment Agreement. For more information, see “Timwell Private Placement” below.
Our anticipated primary uses of cash are (i) sales, marketing and
reimbursement expenses related to market development activities of our ReStore and Personal 6.0 devices, broadening third-party payor
and CMS coverage for our ReWalk Personal device and commercializing our new product lines added through distribution agreements; (ii)
research and development of our lightweight exo-suit technology for potential home personal health utilization for multiple indications
and future generation designs for our spinal cord injury device; (iii) routine product updates; (iv) general corporate purposes, including
working capital needs; and (v) potential acquisitions of business. Our future cash requirements will depend on many factors,
including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending on research
and development efforts and international expansion. If our current estimates of revenue, expenses or capital or liquidity requirements
change or are inaccurate, we may seek to sell additional equity or debt securities, arrange for additional bank debt financing, or refinance
our indebtedness. There can be no assurance that we will be able to raise such funds on acceptable terms.
Loan Agreement with Kreos
and Related Warrant to Purchase Ordinary Shares
Loan Agreement
On December 30, 2015, we entered into the Loan Agreement with Kreos
pursuant to which Kreos extended a line of credit to us in the amount of $20.0 million, which was subsequently amended on June 9, 2017
whereby $3.0 million of the outstanding principal under the Loan Agreement became subject to repayment pursuant to the senior secured
Kreos Convertible Note issued on that date. On November 20, 2018 we and Kreos entered into the Second Amendment to the Loan Agreement,
in which we repaid Kreos the $3.6 million other related payments, including prepayment costs and end of loan payments, terminating the
Kreos Note, by issuing to Kreos 192,000 units and 288,000 pre-funded units as part of an underwritten public offering at the public offering
prices, and the parties agreed to revise the principal and the repayment schedule under the Kreos Loan. On December 29, 2020, we repaid
in full the remaining loan principal amount to Kreos including end of loan payments and by that discharged all of its obligation to Kreos
Accordingly, as of December 31, 2020 the outstanding principal amount under the Kreos Loan Agreement was zero.
76
Warrant to Purchase Ordinary Shares
Pursuant to the terms of the Loan Agreement, on January 4, 2016,
we issued to Kreos a warrant to purchase up to 4,771 of our ordinary shares at an exercise price of $241.0 per share, increased to 6,679
ordinary shares on December 28, 2016. Subject to the terms of the warrant, the warrant is exercisable, in whole or in part, at any time
prior to the earlier of (i) December 30, 2025, or (ii) immediately prior to the consummation of a merger, consolidation, or reorganization
of us with or into, or the sale or license of all or substantially all our assets or shares to, any other entity or person, other than
a wholly-owned subsidiary of us, excluding any transaction in which our shareholders prior to the transaction will hold more than 50%
of the voting and economic rights of the surviving entity after the transaction. On June 5, 2019 and June 6, 2019, we entered into warrant
exercise agreements with certain institutional investors of warrants to purchase our ordinary shares, pursuant to which, Kreos agreed
to exercise in cash their November 2018 warrants at the then-effective exercise price of $7.50 per share. Under the exercise agreements,
we also agreed to issue to Kreos new warrants to purchase up to 480,000 ordinary shares at an exercise price of $7.50 per share with an
exercise period of five years. Additionally, Kreos and we entered into the Kreos Warrant Amendment, which amended the exercise price of
the warrant to purchase 6,679 ordinary shares currently held by Kreos from $241 to $7.5.
Paycheck Protection Program Loan Agreement
On April 21, 2020, ReWalk Robotics Inc (“RRI”) entered
into a Note agreement evidencing an unsecured loan in the amount of $392 thousand under the PPP as part of the CARES Act enacted
on March 27, 2020. The Note provides for an interest rate of 1.00% per year and matures two years after the date of initial
disbursement. Beginning on the seventh month following the date of initial disbursement, RRI is required to make 18 monthly
payments of principal and interest. The Note may be used for payroll costs, costs related to certain group health care benefits and insurance
premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred
before February 15, 2020. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a
portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds
for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject
to further requirements in any regulations and guidelines the Small Business Administration may adopt.
On September 29, 2020, the Company submitted an application for
loan forgiveness and on November 6, 2020 the Company received confirmation of its PPP Note forgiveness. For more information see Note
10 to our consolidated financial statements set forth in “Part II. Item 8. Financial Statements and Supplementary Data” of
this annual report.
Equity Raises
Use of Form S-3
Beginning with the filing of our Form 10-K on February 17, 2017,
we were subject to limitations under the applicable rules of Form S-3, which constrained our ability to secure capital pursuant to our
ATM Offering Program or other public offerings pursuant to our effective Form S-3. These rules limit the size of primary securities offerings
conducted by issuers with a public float of less than $75 million to no more than one-third of their public float in any 12-month period.
At the time of filing our annual report for the year ended December 31, 2020, we were no longer subject to these limitations, because
our public float had reached at least $75 million in the 60 days preceding the filing of that annual report. Likewise, because our public
float was at least $75 million within the 60 days preceding the date of this annual report, we are not currently subject to these limitations.
Our currently effective registration statement on Form S-3 expires on May 23, 2022. If we file a new registration statement on Form S-3
to replace our expiring registration statement, we will be required to re-test our compliance with these rules at that time. Assuming
we are not subject to these limitations at the time the new registration statement is filed, if we choose to do so, then we will not be
subject to these limitations for the remainder of the 2022 fiscal year and until such time as we file our next annual report for the year
ended December 31, 2022, at which time we will be required to re-test our status under these rules. If our public float subsequently drops
below $75 million as of the filing of our next annual report on Form 10-K, or at the time we file a new Form S-3, we will become subject
to these limitations again, until the date that our public float again reaches $75 million. These limitations do not apply to secondary
offerings for the resale of our ordinary shares or other securities by selling shareholders or to the issuance of ordinary shares upon
conversion by holders of convertible securities, such as warrants. We have registered up to $100 million of ordinary shares warrants
and/or debt securities and certain other outstanding securities with registration rights on our current registration statement on Form
S-3.
77
Equity Offerings and
Warrant Exercises
On February 10, 2020, the Company closed a “best efforts”
public offering whereby the Company issued an aggregate of 5,600,000 of common units and pre-funded units at a public offering price of
$1.25 per common unit and $1.249 per pre-funded unit. As part of the public offering, the Company entered into a securities purchase agreement
with certain institutional purchasers. Each common unit consisted of one ordinary share, par value NIS 0.25 per share, and one common
warrant to purchase one ordinary share. Each pre-funded unit consisted of one pre-funded warrant to purchase one ordinary share and one
common warrant. Additionally, the Company issued warrants to purchase up to 336,000 ordinary shares, with an exercise price of $1.5625
per share, to representatives of H.C. Wainwright as compensation for its role as the placement agent in the Company’s February 2020
offering. As of December 31, 2020, all pre-funded warrants to purchase ordinary shares had been exercised and 1,831,500 common warrants
to purchase ordinary shares had been exercised.
On July 6, 2020, the Company entered into a purchase agreement
with certain institutional investors for the issuance and sale of 4,938,278 ordinary shares, par value NIS 0.25 per share, at $1.8225
per ordinary share and warrants to purchase up to 2,469,139 ordinary shares with an exercise price of $1.76 per share, exercisable from
July 6, 2020, until January 6, 2026. Additionally, the Company issued warrants to purchase up to 296,297 ordinary shares, with an exercise
price of $2.2781 per share, exercisable from July 6, 2020, until July 2, 2025, to certain representatives of H.C. Wainwright as compensation
for its role as the placement agent in our July 2020 registered direct offering.
On December 8, 2020, the Company entered into a private placement
with certain institutional investors for the issuance and sale of 5,579,776 ordinary shares, par value NIS 0.25 per share, at $1.43375
per ordinary and warrants to purchase up to 4,184,832 ordinary shares with exercise price of $1.34 per share, exercisable from December
8, 2020 until June 8, 2026. Additionally, the Company issued warrants to purchase up to 334,787 ordinary shares, with an exercise price
of $1.7922 per share, exercisable from December 8, 2020, until June 8, 2026, to certain representatives of H.C. Wainwright as compensation
for its role as the placement agent in our December 2020 private placement.
On February 19, 2021, the Company entered into a purchase agreement
with certain institutional and other accredited investors for the issuance and sale of 10,921,502 ordinary shares, par value NIS 0.25
per share at $3.6625 per ordinary share and warrants to purchase up to an aggregate of 5,460,751 ordinary shares with an exercise price
of $3.6 per share, exercisable from February 19, 2021, until August 26, 2026. Additionally, the Company issued warrants to purchase up
to 655,290 ordinary shares, with an exercise price of $4.578125 per share, exercisable from February 19, 2021, until August 26, 2026,
to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in our February 2021 private placement
offering.
On September 27, 2021, we signed a purchase agreement with certain
institutional investors for the issuance and sale of 15,403,014 ordinary shares, pre-funded warrants to purchase up to an aggregate of
610,504 ordinary shares and ordinary warrants to purchase up to an aggregate of 8,006,759 ordinary shares at an exercise price of $2.00
per share. The pre-funded warrants have an exercise price of $0.001 per ordinary share and are immediately exercisable and can be exercised
at any time after their original issuance until such pre-funded warrants are exercised in full. Each ordinary share was sold at an offering
price of $2.035 and each pre-funded warrant was sold at an offering price of $2.034 (equal to the purchase price per ordinary share minus
the exercise price of the pre-funded warrant). The offering of the ordinary shares, the pre-funded warrants and the ordinary shares that
are issuable from time to time upon exercise of the pre-funded warrants was made pursuant to our shelf registration statement on Form
S-3 initially filed with the SEC on May 9, 2019, and declared effective by the SEC on May 23, 2019, and the ordinary warrants were issued
in a concurrent private placement. The ordinary warrants are exercisable at any time and from time to time, in whole or in part, following
the date of issuance and ending five and one-half years from the date of issuance. All of the pre-funded warrants were exercised in full
on September 27, 2021, and the offering closed on September 29, 2021. Additionally, we issued warrants to purchase up to 960,811 ordinary
shares, with an exercise price of $2.5438 per share, exercisable from September 27, 2021, until September 27, 2026, to certain representatives
of H.C. Wainwright as compensation for its role as the placement agent in our September 2021 private placement offering.
78
During the twelve months ended December 31, 2021, we received a
total of 9,814,754 outstanding warrants exercises with exercise prices ranging from $1.25 to $1.79 were exercised, for total gross proceeds
of approximately $13.8 million.
ATM Offering Program
On May 10, 2016, we entered into our Equity Distribution Agreement
with Piper Jaffray, as amended on May 9, 2019, pursuant to which we may offer and sell, from time to time, ordinary shares having an aggregate
offering price of up to $25.0 million through Piper Jaffray acting as our agent. Subject to the terms and conditions of the Equity Distribution
Agreement, Piper Jaffray will use its commercially reasonable efforts to sell on our behalf all of the ordinary shares requested to be
sold by us, consistent with its normal trading and sales practices. Piper Jaffray may also act as principal in the sale of ordinary shares
under the Equity Distribution Agreement. Such sales may be made under our Form S-3 in what may be deemed “at-the-market” equity
offerings as defined in Rule 415 promulgated under the Securities Act, directly on or through the Nasdaq Capital Market, to or through
a market maker other than on an exchange or otherwise, in negotiated transactions at market prices prevailing at the time of sale or at
prices related to such prevailing market prices, and/or any other method permitted by law, including in privately negotiated transactions.
Piper Jaffray is entitled to compensation at a fixed commission
rate of 3% of the gross sales price per share sold through it as agent under the Equity Distribution Agreement. Where Piper Jaffray acts
as principal in the sale of ordinary shares under the Equity Distribution Agreement, such rate of compensation will not apply, but in
no event will the total compensation of Piper Jaffray, when combined with the reimbursement of Piper Jaffray for the out-of-pocket fees
and disbursements of its legal counsel, exceed 8.0% of the gross proceeds received from the sale of the ordinary shares.
We may instruct Piper Jaffray not to sell ordinary shares if the
sales cannot be effected at or above the price designated by us in any instruction. We or Piper Jaffray may suspend an offering of ordinary
shares under the ATM Offering Program upon proper notice and subject to other conditions, as further described in the Equity Distribution
Agreement. Additionally, the ATM Offering Program will terminate on the earlier of (i) the sale of all ordinary shares subject to the
Equity Distribution Agreement, (ii) the date that is three years after a new registration statement on Form S-3 goes effective, (iii)
our becoming ineligible to use Form S-3 and (iv) termination of the Equity Distribution Agreement by the parties. The Equity Distribution
Agreement may be terminated by Piper Jaffray or us at any time on the close of business on the date of receipt of written notice, and
by Piper Jaffray at any time in certain circumstances, including any suspension or limitation on the trading of our ordinary shares on
the Nasdaq Capital Market, as further described in the Equity Distribution Agreement. We temporarily suspended use of the ATM Offering
Program on February 20, 2019 to facilitate our February 2019 “best efforts” public offering. As of September 30, 2020,
we had sold 302,092 ordinary shares under the ATM Offering Program for net proceeds to us of $14.5 million (after commissions, fees, and
expenses). Additionally, as of that date, we had paid Piper Jaffray compensation of $471 thousand and had incurred total expenses (including
such commissions) of approximately $1.2 million in connection with the ATM Offering Program.
We intend
to continue using the at-the-market offering or similar continuous offering programs opportunistically to raise additional funds, although
we are currently subject to restrictions on using the ATM Offering Program with Piper Jaffray. Under our September 2021 purchase
agreement with certain investors, equity or debt securities convertible into, or exercisable or exchangeable for, ordinary shares at a
conversion price, exercise price or exchange price which floats with the trading price of the ordinary shares or which may be adjusted
after issuance upon the occurrence of certain events or (ii) enter into any agreement, including an equity line of credit, whereby the
Company may issue securities at a future-determined price, other than an at–the-market facility with the placement agent, H.C. Wainwright
& Co, LLC, beginning on March 29, 2022. Such limitations may inhibit our ability to access capital efficiently.
79
Timwell Private Placement
On March 6, 2018, we entered into an investment agreement with
Timwell Corporation Limited, a Hong Kong corporation (“Timwell”), as amended on May 15, 2018 (the “Investment Agreement”),
pursuant to which we agreed, in return for aggregate gross proceeds to us of $20 million, to issue to Timwell an aggregate of 640,000
of our ordinary shares, at a price per share of $1.25. The Investment Agreement contemplates issuances in three tranches, including $5
million for 160,000 shares in the first tranche, $10 million for 320,000 shares in the second tranche and $5 million for 160,000 shares
in the third tranche.
The first tranche, consisting of $5 million for 160,000 shares, closed
on May 15, 2018. The net aggregate proceeds after deducting commissions, fees and offering expenses in the amount of approximately $705
thousand were approximately $4.3 million.
The closings of the Second Tranche and Third Tranche were subject
to specified closing conditions, including the formation of a joint venture, the signing of a license agreement and a supply agreement,
and the successful production of certain ReWalk products. The Third Tranche Closing was to have occurred by December 31, 2018 and no later
than April 1, 2019. We believe that Timwell committed various material breaches of the Investment Agreement, including failure to consummate
its second and third investment tranches in the Company for a total of $15 million, failure to enter into a detailed joint venture with
the Company, and failure to make payments for product-related commitments. Nevertheless, until March 2020 we continued to engage in a
dialogue with Timwell (and its affiliate RealCan) on alternative pathways to allow us to commercialize our products in China through RealCan
and its affiliates, and also provide for RealCan or an affiliate to invest in us.
In late March 2020, Timwell notified us that it would not invest
the second and third tranches under the Investment Agreement. In response, in early April 2020, our Board of Directors also removed Timwell’s
designee, who was appointed pursuant to the Investment Agreement, from the Board of Directors, due to this breach pursuant to the terms
of the Investment Agreement. We continue to view China as a market with key opportunities for products designed for stroke patients, and
therefore we continue to evaluate potential relationships with other groups to penetrate the Chinese market.
Cash Flows
Years Ended December 31,
2021
2020
2019
Net cash used in operating activities
$
(11,469
)
$
(12,589
)
$
(14,815
)
Net cash provided by used in investing activities
(47
)
(73
)
(22
)
Net cash provided by financing activities
79,512
16,724
21,482
Net cash flow
$
67,996
$
4,062
$
6,645
Year Ended December 31, 2021 to Year Ended December 31, 2020
Net Cash Used in Operating Activities
Net cash used in operating activities decreased by $1.1 million
in 2021 compared to 2020 mainly due to due to improvement in working capital as well as no interest payments to Kreos as we repaid our
debt under the Loan Agreement in full in December 2020.
80
Net Cash Used in Investing Activities
Net cash used in investing activities decreased from $73 thousand in 2020 to $47 thousand
in 2021, primarily as a result of decreased use of cash for the purchase of property and equipment.
Net Cash Provided by Financing Activities
We generated $79.5 million from financing activities in 2021 compared
to $16.7 million in 2020. The increase is primarily due to the higher proceeds received through our first and third quarter equity raise
and warrants exercises, as well as the fact that we did not have any principal payments pursuant to the Loan Agreement with Kreos after
repaying our debt in full in December 2020.
Year Ended December 31, 2020 Compared to Year Ended December 31,
2019
A discussion of changes in our cash flows in 2020 compared to 2019 has been omitted
from this annual report on Form 10-K but may be found in “Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 18, 2021, which
is available free of charge on the SECs website at www.sec.gov and at www.rewalk.com, and is incorporated by reference herein.
Obligations and Commercial Commitments
Set forth below is a summary of our contractual obligations as of December 31,
2021:
Payments due by period (in dollars, in thousands)
Contractual obligations
Total
Less than
1 year
1-3 years
Purchase obligations (1)
$
1,457
$
1,457
$
—
Collaboration Agreement and License Agreement obligations (2)
145
145
—
Operating lease obligations (3)
1,189
689
500
Total
$
2,791
$
2,291
$
500
(1)
The Company depends on one contract manufacturer, Sanmina Corporation, for both the ReStore products and
the SCI Products. We place our manufacturing orders with Sanmina pursuant to purchase orders or by providing forecasts for future requirements
(2)
Our Collaboration Agreement was originally signed for a period of six years and as of December 31, 2021
has a remaining term of 0.25 years, it requires us to pay in quarterly installments for the funding of our joint research collaboration
with Harvard, subject to a minimum funding commitment under applicable circumstances. Our License Agreement consists of patent reimbursement
expenses payments and of a license upfront fee payment. There are also several milestone payments contingent upon the achievement of certain
product development and commercialization milestones and royalty payments on net sales from certain patents licensed to Harvard. These
product development milestones have been met as of December 31, 2021. There are commercialization milestones which depend on us reaching
certain sales amounts some or all of which may not occur.
(3)
Our operating leases consist of leases for our facilities and motor vehicles.
We calculated the payments due under our operating lease obligation
for our Israeli office that are to be paid in NIS at a rate of exchange of NIS 3.11:$1.00, and the payments due under our operating lease
obligation for our German subsidiary that are to be paid in euros at a rate of exchange of €1.00:$1.13, both of which were the applicable
exchange rates as of December 31, 2021.
81
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements or guarantees of third-party
obligations during the periods presented.
Trend Information
For information on significant known trends, please see “Part I-Item 1. “Business
– Overview” in this annual report.